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The Social Network settlement upheld on appeal

On April 12, 2011, in Litigation, Social Networking, United States, by Jorge Espinosa

The story of “The Social Network” jumps off the silver screen and back into the news.  On Monday April 11, 2011, a three-judge panel of the Ninth Circuit Court of Appeals ruled that the 2008 settlement deal between Mark Zuckerberg, founder of Facebook, and Olympic rowing twins Cameron and Tyler Winklevoss is valid and enforceable.

The appeal arises from a long series of events retold in the aboved named movie.  The Winklevoss twins hired Zuckerberg to help them develop a social networking site named ConnectU.  When Zuckerberg came out with Facebook the Winklevoss twins sued claiming that Zukerberg stole their idea.  In 2008, the parties agreed to a settlement whereby Facebook acquired all of the ConnectU stock in exchange for $20 million in cash and $45 million in Facebook stock, which was valued at $35.90 a share.

The Winklevosses and the third ConnectU co-founder, Divya Narendra, soon developed buyer’s remorse over the settlement and brought suit to challenge the settlement.  The challenge centered on two issues.  First, that the two page settlement agreement was not an enforceable because it is missing various terms usually and customarily found in such agreements.  Second, that Zuckerberg concealed valuation and other information necessary to properly assess the value of the settlement in violation of the Securities and Exchange Act of 1934.

After the District Court refused to throw out the settlement, Winklevosses and Narenda appealed.  On Monday the 9th Circuit Court of Appeals affirmed the lower court ruling.

In his opinion Chief Judge Alex Kozinski stated “[a]t some point, litigation must come to an end.  That point has now been reached.”  The Appellants, however, disagree and have already announced that they will file a petition for a rehearing en banc by the full 9th Circuit panel.

Does anyone else see a sequel in the making?


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Jorge Espinosa


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